China

The pattern of growth that drove the Chinese economic miracle has broadly run its course. China’s future prosperity now rests on the shoulders of its policymakers. Will they be able to steer the Chinese economy to prosperity, or will China be bogged down in the middle-income trap? Broadly speaking, there are three paths the Chinese economy can go down.

China’s substantive economic slowdown following the 2008–09 global financial crisis has added fuel to the long-running debate over the sustainability of China’s growth model. Despite the government’s unprecedented stimulus package, the official statistics — though often accused of exaggerating real performance, especially in times of crisis — show that China nearly halved its pace of growth, from 13.5 percent per annum in 2005–07 to about 7 percent per annum in 2013–15.

This is the period in the monthly cycle that China releases most of its high frequency data. The process is well under way. Over the weekend, China reported its reserve figures that suggested capital outflows have slowed.

Since the mid-2000s, Chinese corporate debt has risen sharply as a proportion of GDP — from around 100 percent to 164 percent in 2015. By comparison, this ratio is 67 percent in the United States and 103 percent in Japan. The rapid build-up of debt has prompted concerns regarding China’s financial and macroeconomic stability.

Americans have a saying about an 800-pound gorilla in a room. It refers to a person or organization so powerful that it can act unilaterally. The British have an expression about an elephant in a room. It refers to a "fact" or problem that is not being addressed.

Assuming no surprises in the second half of the year, China’s growth in 2016 will remain near the target of 6.5 percent reflecting structural transition in the mainland, secular stagnation in the West and post-Brexit tensions globally.

In mid-July, China’s second-quarter GDP figures beat estimates with a 6.7 percent expansion, thanks to support by a slate of stimulus measures from the government and the central bank.

China has had remarkable success in alleviating poverty. According to World Bank statistics, over the past several decades China has accounted for more than 70 percent of reductions in global poverty. The poverty-stricken population in China has plunged from 770 million people in 1978 — the year before economic reforms began — to 55.8 million in 2015. In addition, the Human Development Index (HDI) for China has improved by 43 percent between 1990 and 2013, compared to an improvement of 17.6 percent globally.

China is unusual in that it is a developing country that has emerged as a major investor. China itself is an important destination for foreign direct investment (FDI), and opening to the outside world has been an important part of its reform program since 1978. However, China’s policy is to steer FDI to particular sectors.

After weeks of torrential rain across central and southern China, the mainland has suffered from a series of devastating floods. As the total price tag has soared, the impact will be felt in economic growth.

By mid-July, almost 240 people had lost their lives and nearly 100 were missing, as China’s floods had been compounded by Typhoon Nepartak and a violent tornado. Torrential rains affected 33 million people in 28 provinces, submerging huge areas of cropland.

In East Asia, rapid income growth in the second half of last century has produced unprecedented and rapid population ageing. Rising living standards and incomes tend to induce longer lifespans and fewer births per woman, leading to dramatic increases in the proportion of old people within the total population. Where it took France 115 years to double the share of its population that is 65 years and over from 7 to 14 percent, the same shift in China will take just 25 years.